Moving Fast

This note was originally published at 8am on November 01, 2012 for Hedgeye subscribers.

“The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow.”

-Rupert Murdoch

 

A friend of mine in Connecticut just sent me that quote. Like most of us on the East Coast, he’s up and at it early this morning. Risk happened fast. Now it’s time to slap on a pair of jeans, fire up our generators, and take on the day.

 

In The Signal And The Noise, Nate Silver calls out what physicist Didier Sornette alludes to as the “fight between order and disorder” (page 368). That fight isn’t new. However, through chaos theory, we are beginning to understand it more clearly.

 

Not unlike the world and its weather, I think about the Global Macro marketplace as one of interconnected factors that are colliding within a complex system. “Complex systems like this can at once seem very predictable and very unpredictable… they periodically undergo violent and highly non-linear phase changes from orderly to chaotic and back again.” (Silver, page 369)

 

Back to the Global Macro Grind

 

For most things Big Beta, October was gnarly. We won’t know what the fallout looks like on the buy-side until it’s old news. But the new news is that buying high-beta stocks and/or commodities at the Bernanke Top of September 14th, 2012 left a mark.

 

That’s not to say there weren’t what perma-bull marketing pundits tried to sell you yesterday morning as a “hurricane Sandy buying opportunity.” You just need to be selective about what you buy and when.

 

In the US stock market alone, look at the S&P Sector performance divergences for October 2012:

  1. SP500 = -2.0%
  2. Financials (XLF) = +2.0%
  3. Utilities (XLU) = +1.4%
  4. Basic Materials (XLB) = -2.1%
  5. Technology (XLK) = -6.3%

Markets rarely make perfect sense to me but, from a research perspective, these Sector divergences did.

  1. SP500 = bearish TRADE and TREND, so pervasive weakness into month-end made sense
  2. Financials = that’s the 1st Sector you buy if you think Romney wins (his closing the gap was enough, for starters)
  3. Utilities = that’s the low-beta trade that we recommended downshifting to last month; we’re still long it
  4. Basic Materials = get the Dollar right (Romney momentum = anti Bernanke momentum), you get commodities right
  5. Technology = Growth and #EarningsSlowing (our Top Macro Theme for Q412) matters, in the end

Where to from here? Let’s start with the Hedgeye Asset Allocation Model:

  1. Cash = 58%
  2. Fixed Income = 21% (Treasuries, Treasury Curve Flatteners, German Bunds – we still like them all during #GrowthSlowing)
  3. International FX = 15% (Strong US Dollar, stick with it unless it becomes clear that Obama is going to win)
  4. US Equities = 6% (Utilities and Financials we think continue to work; buy them on red)
  5. International Equities = 0% (with markets like Russia moving back into crash mode (-19.1% since March) we’re in no hurry)
  6. Commodities = 0% (we’ve been calling it Bernanke’s Bubble since March – sticking with it)

The asset allocation model isn’t for everyone. It’s actually for me. It’s how I think about my own money and what I am willing to put at risk at a given time and price. Since I own a lot of Hedgeye stock, my Cash position is overstated. This is meant to be a product whereby I can signal when/where I’d be adding to or subtracting from big liquid asset classes, on the margin.

 

The most important principle in my decision making process is uncertainty. I embrace it every minute of the day and reserve the right to change my mind, fast. That’s not for everyone. And I get that. I also get that, sometimes, it’s better than being slow.

 

After all, that’s what Rupert Murdoch is alluding to in the aforementioned quote inasmuch as the world’s largest sovereign governments have been reminding you of, almost daily, for the last 5 years. While Too Big To Move can be a problem for you when you have an 80 foot tree hanging on power lines across your driveway, you still need to be fast to adapt and change.

 

Our immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, Technology (XLK), AAPL, and the SP500 are now $1691-1730, $107.41-109.09, $79.56-80.39, $1.28-1.30, 1.70-1.75%, $28.29-29.44, $586-616, and 1388-1419, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Moving Fast - Chart of the Day

 

Moving Fast - Virtual Portfolio


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more